Analysis of Mortgage Fees Differentials Among Four Types of Lenders in Australia

Abstract

Mortgage fees that are charged by lenders have caused increasing concerns to borrowers and policymakers, and heighted debate over time with particular scrutiny during the recent global financial crisis. Interestingly however, there is almost no research on mortgage fees in the Australian context. This paper analyzes mortgage fee differentials among banks, mortgage corporations, building societies and credit unions operating in Australia during the research period. Findings suggest that banks charged the highest total, origination and ongoing fees while mortgage corporations have the lowest ongoing fees. The results also suggest that mortgage corporations require the same level of total fees as those of member-based institutions (building societies and credit unions), however banks and building societies have about 7 and 3 basis points of ongoing fees respectively more than mortgage corporations. Ongoing fees are an important mortgage cost because a borrower must pay them for a whole life of a loan, unlike the upfront fees that are paid just once. It also suggests that unlike mortgage corporations (the securitizer), depository lenders that charged higher ongoing fees probably maintain the customer relationship. This provides preliminary evidence in line with the existing US literature that there are statistically significant differences between the fee structures of Australian mortgage products.

Keywords: Mortgage Fees, Fee Differentials, Australian Mortgage Lenders

JEL Classification: G21, G30